Executive summary: key legal and evidentiary issues

• Lazaros Gaitanis was denied the GST/HST New Housing Rebate of $24,000 after purchasing a new home at 59 Greti Drive, Hamilton, Ontario with his niece, Lucia Silhanova, in 2014.

• Under the pre-2021 version of subsection 262(3) of the Excise Tax Act, both co-purchasers were required to independently demonstrate the requisite intention to use the property as a primary residence or that of a "relation."

• An uncle-niece relationship does not qualify as a "relation" under subsection 126(2) of the Excise Tax Act and subsection 251(6) of the Income Tax Act, as established in The Queen v. Ngai, 2019 FCA 181 (nephew) and Reeves v. The Queen, 2021 TCC 74 (niece).

• Lazaros' testimony regarding his own intention to use the property as his primary residence was found to be inconsistent, and on cross-examination, evasive, failing to discharge his burden of proof on a balance of probabilities.

• The frustration argument — that inability to secure long-term financing forced the sale before occupancy — was rejected because Lazaros never established the requisite intent at the time the Agreement of Purchase and Sale was signed.

• The property was sold in or around July 2015 before either purchaser moved in, and the appeal was dismissed without costs.

The purchase and the parties involved

In August 2014, Lazaros Gaitanis and his niece, Lucia Silhanova, signed an Agreement of Purchase and Sale with a builder for a newly constructed single unit residential complex located at 59 Greti Drive, Hamilton, Ontario, at a purchase price of $465,085.82. Ms. Silhanova was not able to secure financing to purchase the property on her own, so Lazaros offered to assist his niece by, in his words, acting as a "guarantor" or "co-signer" for the purchase. The purchase was originally financed with a short-term mortgage granted by a private mortgage provider, as financing could not be obtained through a major bank. The purchase closed on December 31, 2014, and in January 2015, Lazaros filed an application for the Rebate and was credited the Rebate by the builder.

Financing difficulties and the sale of the property

Shortly thereafter, despite engaging the services of a local mortgage broker, Lazaros and Ms. Silhanova realized that they would not be able to obtain long-term mortgage financing on acceptable terms and that therefore they could not retain the Rebate Property. A second short-term mortgage was obtained to allow them to meet their initial mortgage obligations. The Rebate Property was sold in or around July 2015 before either Lazaros or Ms. Silhanova moved into the property.

The rebate denial and the statutory framework

The Minister of National Revenue denied the $24,000 GST/HST New Housing Rebate, prompting Lazaros to appeal to the Tax Court of Canada under the informal procedure. Under subsection 254(2) of the Excise Tax Act, seven conditions must be met to qualify for the Rebate. Two were specifically at issue: paragraph 254(2)(b), which requires that at the time the particular individual becomes liable under the Agreement of Purchase and Sale, the individual is acquiring the property for use as a primary place of residence of the particular individual or a relation of the particular individual; and paragraph 254(2)(g), which requires either that the particular individual or a relation was the first to occupy the property as a place of residence after substantial completion of construction, or that the particular individual makes an exempt supply by way of sale before anyone occupies it. Because the purchase price exceeded $450,000, the federal portion of the Rebate disappeared entirely. However, subsection 41(2) of the New Harmonized Value-Added Tax System Regulations, No. 2 governs the Ontario portion of the Rebate and allows for a partial rebate even where the price exceeds $450,000, to a maximum rebate amount of $24,000, provided the remaining conditions of subsection 254(2) are met.

The intention requirement and multiple purchasers

A critical question was whose intention mattered. Under the pre-2021 version of subsection 262(3) of the Act, when a supply of a residential complex is made to two or more individuals, the references in sections 254 to 256 to a particular individual shall be read as references to all of those individuals as a group. The Federal Court of Appeal confirmed in Canada v. Cheema, 2018 FCA 45, that all signatories to an agreement of purchase and sale are required to have the necessary intention in order to qualify for the Rebate. A 2021 amendment later made the Rebate available where a new home was acquired as the primary place of residence of any one of the purchasers or a relation, but because the Agreement of Purchase and Sale in this case was signed in 2014, the earlier version applied. The Court accepted Lazaros' testimony that they were each acquiring the Rebate Property for use as the primary place of residence of Ms. Silhanova and her three children. However, Lazaros was not clear on the issue of whether he also intended to use the Rebate Property as his primary place of residence. His stance on this issue seemed to change throughout both his direct testimony and his testimony on cross-examination. At times he suggested that he only signed the Agreement of Purchase and Sale as a "co-signor" so that Ms. Silhanova and her children would have a home. At other times he opined that intentions change and that he may have moved into the Rebate Property but for the financing problems. Justice Bodie found his testimony on this question to be inconsistent, and on cross-examination, evasive, concluding that on a balance of probabilities, Lazaros had not successfully discharged his burden to show that he had the necessary intention at the applicable time.

The uncle-niece relationship does not qualify

The next question was whether Ms. Silhanova, as Lazaros' niece, could be considered a "relation" under the Act, which would have allowed Lazaros to satisfy the intention requirement through her. Under subsection 254(1), a "relation" of a particular individual is another individual who is related to the particular individual or who is a former spouse or common-law partner. Subsection 126(2) of the Act provides that persons are related to each other for purposes of Part IX if, by reason of subsections 251(2) to (6) of the Income Tax Act, they are related to each other for purposes of that Act. Paragraph 251(6)(a) of the Income Tax Act defines blood relationship as existing where one person is the child or other descendant of the other, or one is the brother or sister of the other. In The Queen v. Ngai, 2019 FCA 181, the Federal Court of Appeal held that "a nephew is not related to his aunt or uncle" for the purposes of subsection 126(2) of the Act and subsection 251(6) of the Income Tax Act. Prior to that, Justice Russell stated in Zheng v. The Queen, 2017 TCC 132 that a niece was not included in the defined term of "relation" according to subsection 126(2), and in Reeves v. The Queen, 2021 TCC 74, Justice Russell followed Ngai and held that a niece is not a relation of her aunt for the purposes of paragraph 254(2)(b). Accordingly, the Court found that Lazaros and Ms. Silhanova are not related for the purposes of the Act, and the paragraph 254(2)(b) requirement could not be met.

The frustration argument and the ruling

Lazaros argued that he and Ms. Silhanova were unable to arrange for financing on terms which they considered economically viable, as they had expected when they signed the Agreement of Purchase and Sale, and were therefore forced to sell the Rebate Property before they could occupy it. The Court acknowledged that frustration has been considered in past cases in two circumstances: first, when determining whether a party's statement of intention is credible, and second, where the Court has found that the taxpayer had the requisite intention at the time a purchase and sale agreement was signed but an intervening event occurred before the taxpayer could occupy the property. However, the Court found that even before the potential occurrence of any intervening event, and regardless of whether or not he ultimately occupied the Rebate Property, Lazaros did not have the requisite intent necessary to fulfill the requirement in paragraph 254(2)(b). Justice Bodie emphasized that at minimum, a taxpayer must have the requisite intent at the moment in time that the agreement of purchase and sale is signed, and if the taxpayer does not fulfill that requirement, frustration cannot be raised to assist. Notably, the Respondent's counsel conceded that the requirement set out in paragraph 254(2)(g) was actually met by way of the exempt sale of the property before occupancy. However, as all seven requirements of subsection 254(2) must be met — as indicated by the word "and" in the listing of such requirements — the failure to satisfy paragraph 254(2)(b) was dispositive. The Tax Court of Canada dismissed the appeal without costs, and the $24,000 GST/HST New Housing Rebate was denied. No exact amount was ordered or awarded, as the case resulted in the dismissal of the Appellant's claim, affirming the Minister's original assessment in favor of His Majesty the King.